Covid-19 could be the catalyst that brings change to the anachronistic AGM. And it’s about time too as the whole investor relationship has changed, says Robert Bruce
This article was first published in the June 2020 UK edition of Accounting and Business magazine.
When is an annual general meeting not an annual general meeting? Well, it could be the one that happens this year. The malign effect of Covid-19 is likely to change this time-honoured institution. And, frankly, this is all to the good. But the lawyers are not going to give up without a fight.
Of all corporate events, the AGM is the one that has become the most ossified of all. Really, they have lost the reason to exist.
Once upon a time, back when private investors were a force, they were an occasion where a face-to-face assessment could be made about a company’s right to retain its investors’ confidence. But with the erosion of private investors and the rise of large institutional groups, that has gone.
Large investor groupings now organise their own meetings with board members to gauge a company’s prospects. Increasingly, the power dynamics have moved elsewhere.
AGMs still retain the interest of small shareholders, who turn up for the perks available. And there has been a growth in social and environmental activists who want to make their voices heard. In recent years, however, companies have held the events simply because there is a legal requirement to do so.
The current extraordinary events ought to be the catalyst for change. The obvious answer would be to allow them, legally, to become virtual AGMs. The crisis has obviously hastened such a move, and increasingly across the rest of Europe the barriers to this are falling.
‘I don’t see how we can continue without the right to have a virtual AGM,’ says Susan Stenson, a partner at consultants Independent Audit. ‘It is going against the tide and won’t be acceptable.’ But it will need government change through the Department for Business, Energy and Industrial Strategy, and the official line is: ‘Virtual meetings are uncommon and largely untested in the UK, and mandating their use is likely to create further significant issues.’
Learning from the continent
Across Europe it’s a different story. The crisis has crystallised the need for change. Meanwhile the more that large UK companies announce they will simply hold their AGMs behind closed doors, the more infuriated organisations such as ShareAction, the responsible investment charity, become. And they are quite right to do so. But they really ought to be going for the changes that would make AGMs much more effective and responsive in future. ‘We can use this time to shape governance in the UK in a positive way,’ says Stenson. ‘Shareholders are only going to become more active in the future. Why not allow change now to take account of that?’
And there is much to discuss. The changes in corporate behaviour in the midst of a crisis so far are likely to remain the status quo even after the emergency has lifted. The whole investor relationship has shifted. When the government proclaims that large companies like banks should not be paying dividends, then the investor objectives change. Long term, it might mean more resilience-building. Short term, it takes the income from pensions.
There are some fundamental changes in governance here, so it is more important than ever for investors to be asking about the trade-offs. The current system doesn’t allow for this in any effective form. Increasingly, the answer may be for companies to split the AGM’s role: the legal aspects could be dealt with in one meeting and the really contentious issues in another. The argument is that the real discussions should happen long before the legal meeting. ‘Do investors really use the AGM as a tool for holding companies to account?’ asks Stenson. ‘If investors have a real issue, they should be getting in touch ages before the AGM.’ At the beginning of the year none of this was on anyone’s agenda – it is now.
Robert Bruce is an accountancy commentator and journalist.
"When the government proclaims that large companies should not be paying dividends, then the investor objectives change"